Saudi America and a Nuclear Future?

Diving Into Stories of Energy Transition with Chris NelderPart One of Four. Link to Part 2, and Part 3.

A transcript of our interview on Extraenvironmentalist #76 by Scott Bohachyk

Editor’s note: We spoke with Chris Nelder for the 2nd half of Extraenvironmentalist #76 and our listener Scott was kind enough to do some heavy lifting in preparing this transcript for your reading pleasure. We’ll be posting the transcript in four parts over the next month. Our thanks goes out to Scott.

Chris: The first story that everyone’s heard a lot about is about fracking in the United States, how tight oil and shale gas are suddenly creating a new abundance that is going to turn America into an energy superpower that can compete with OPEC, that we’re going to produce more oil than Saudi Arabia, we’re going to be Saudi America and that it’s going to change the balance of geopolitics in the world. That’s the story we’ve been given for the last several years and is one that’s been very vigorously promoted by the oil and gas industry, and there’s a lot of reasons why they need to promote that story, but basically, it’s not true.

The US will never produce more oil than Saudi Arabia. We might produce more oil and NGL combined, than Saudi Arabia, but not oil. And so there’s a bit of a misdirection there. Second, it doesn’t matter if we produce more oil than Saudi Arabia, except if you want to beat your chest about it. What matters is does it make our economy better? Is it something consumers can afford? And the fact is that tight oil is very expensive, it’s one the most expensive sources of new oil that we can drill for today. So fracking is not cheap, and as a result, it has produced a certain upward pressure on the global price of oil, and ultimately I believe that’s going to lead us to a point where oil has become too expensive for consumers and they start to find ways to do without it.

So, I’m not sure how useful that whole narrative about the “new abundance” of Saudi America actually is. I mean the fact is that for the last several years we’ve been told that the US is already an exporter of oil and gas. That’s been the story told on CNBC, on all the major news outlets, it’s not true. The US is still a net importer of both oil and natural gas. And so, this new dialogue about how we’re going to suddenly start exporting a lot of oil and gas as a tool against Vladimir Putin in the current Crimea crisis, you know, I don’t know how a net importer can possibly export enough oil and gas to do anything geopolitically so it’s just sort of silly.

The other counter narrative is the one of renewables suddenly taking off and there’s a lot of validity to that. Unfortunately, grid power, like oil, is a very complex subject, it’s not something that very many people understand very well, it’s beginning to happen in a big way in the United States, but I think the big action in renewable growth is happening outside of the United States and Europe; it’s happening in Latin America, it’s happening in Asia, it’s happening in Africa. In 2013, for example, China installed 12 GW of solar capacity, well the United States had about 10 GW of solar capacity in total, that’s like built over all time, China installed more than that in one year and this coming year in 2014 they are expected to install even more, I think 13-14 GW.

Energy transition is happening, but in a lot of ways it’s not necessarily happening where many people think. Solar and wind for example still provide about 4% of global electricity supply, but worldwide if you include hydro and biomass, that’s closer to 23% and then of course those are smaller fractions than the total energy supply, so it’s a complex subject, there’s a lot of data that you have to understand, not very many people do it very well and most of the people in the media really do it badly. So we have these different narratives going on and underneath all of that is the narrative about peak oil, which is still very much intact.

Justin: In the public narrative around energy issues at the macro scale, we’ve got the story that renewables can’t replace fossil fuels and so I frequently hear this: “we have to find something to replace fossil fuels, we’ll go with nuclear power to stabilize emissions and grow the amount of energy consumed on the planet by something like a magnitude of 4 times.”

[ Played a clip from the film Pandora’s Promise in the interview audio ]

Seth: What do we know about the breakthrough institute and the idea about nuclear power as a narrative to replace fossil fuels?

Chris: I don’t know that much about the Breakthrough Institute, or where they get their funding but it’s very clear to me that they firmly believe nuclear power is the only solution [for our energy future] and they have actively written and spoken against deploying renewable energy in favor of deploying nuclear power claiming that renewable energy just isn’t sufficiently advanced and so they advocate for investing heavily in R&D, but not for deploying renewable energy whereas they are absolutely convinced that deploying nuclear energy right now is the right way to go forward. They’ve come up with a number of arguments to make that point, but I don’t really buy it. There’s been a lot of very strange arguments that they’ve made and it just doesn’t make sense to me.

First of all, the world’s demand for energy, very well may not quadruple. [These numbers] are based on forecasts that assume the population grows to 9.5 billion people by 2050 and that we all continue to grow on the energy budget that we currently live on, and a number of other assumptions that are probably not true. I don’t think that we’re going to reach 9.5 billion people on this planet. And I don’t think that we could, or should, aspire to keep living on this same per-capita energy budget as we do today. For example, there’s so much that we can do with efficiency to reduce the amount of energy that we consume, and there’s no reason to think that the developing world should follow the same path as the developed world did in developing their energy supplies. There’s a lot they can do to live more efficiently, to live on a more efficient energy platform that isn’t as reliant on fossil fuels in particular, but also that uses electricity a lot more efficiently.

The Breakthrough Institute has also made some very bizarre arguments comparing nuclear vs. solar. For example, they had an article in 2013 claiming that the cost of German solar in the German energy transition was 4x as expensive as the cost of a nuclear plant that’s now being built in Finland. But I looked very carefully at their analysis and it was just flat wrong. They did a partial analysis of the cost of the new nuclear plant based on the developers cost estimate and compared that to the cost of all installed German solar from 2000-2011, which is a period in which where the price of solar fell dramatically, something which Schellenberger and Nordhaus have even recognized, but they didn’t recognize it in their analysis.

They weighted the much higher cost of the past decade for solar, not the current cost, against the cost of a finished nuclear plant which was then expected to be completed in 2016. But that nuclear plant was actually supposed to enter service in 2009, and we just recently learned the Olkiluoto 3 reactor has been delayed again. Finland can’t even give a start date now. It is going to be delayed until at least 2018 and AREVA, the developer, has taken what they call,“provisions” which I take means losses, of over 4 billion dollars on this plant.

So it’s just a bizarre thing, to take the accumulated cost of solar in Germany, over a decade in which those costs plummeted, and compare that to the cost of a nuclear plant which isn’t going to be finished for years now, which has already accumulated $4 billion is losses. By the time that nuclear plant gets online, solar is definitely going to be cheaper and in fact, depending on how you want to took at it, it already is. An analysis based on the actual unsubsidized cost of German solar in 2016 would find that the cost is below that of nuclear power, not 4x as expensive, and even the subsidized cost would be lower. As Craig Morris pointed out at Renewables International on the German energy transition, the lowest solar PV FiT of 13 cents/kWh on Germany’s sliding scale is already below the cost of EDF’s proposed new nuclear plant in the UK which is coming in at 15 cents/kWh, and Germany’s highest solar FIT will soon be to at 13cents/kWh.

For another example, look at the new nuclear plant in the UK they just signed a deal that comes in at €92/MWh when it starts and that’s inflation adjusted over like 25 years, so compare that to the latest solar plants and wind plants being installed in the United States. We just had, an announcement of the cheapest solar project that’s ever been signed in the United States: 150 MW at below 50$/MWh. So that’s about half the price of this nuclear plant that’s been proposed for the UK, which won’t even be built for several more years yet; I mean solar is already half the price of that in the US.

Seth: So it sounds like to me that solar is the wise man’s investment choice going forward if you’re to be a betting man, solar would be the way forward.

Chris: I sure think so. I mean that new solar plant in the United States benefits from the investment tax credit, which is about 30%, but even if you take that away and the solar plant is now selling its power for let’s say 7.5 cents a kWh, that’s still cheaper than nuclear power and coal power in the United States and it’s about half a cent per kWh more expensive than gas fired power in the US, but if you look at the trajectory of natural gas prices over the next 20 years, which is the time frame you should be comparing, you know if you’re talking about a solar plant or a gas turbine, it’s going to be cheaper than gas too, it is going to be the cheapest power you can generate. Period. And the same is becoming true for wind.

Justin: Why do people even consider nuclear power instead of solar?

Chris: I don’t know, it doesn’t make any sense to me. I mean I can only speculate. On the one hand a lot of people, I think, are carrying around mental models of renewables being sort of a toy that’s really expensive, they just haven’t paid attention to the phenomenal cost decrease that have happened over the past decade, so maybe their information is out of date. Second, I think some people just look at the trajectory of population and they look at the trajectory of energy growth, over time and they assume that those things are sacrosanct, and then they say, “There’s no way that renewables can scale up to meet this demand”, well that’s true, but I don’t think those projections are accurate.

All over the developed world, the OECD countries, we’ve seen electricity demand, which is what we’re talking about here with nuclear and renewables, has actually been falling since about 2005. It’s happened all over Europe, it’s happening in the US, it’s happening in Australia and in some cases we’ve actually got a problem of overcapacity, where the utilities have an excess of generating assets that aren’t running often enough now to justify their expense, and so they’re actually looking at a real future of potentially stranded generating assets, with these big coal, gas and nuclear power plants.

Excelon, for example which is the largest operator of nuclear plants in the United States, just recently said that it would shut down some of its nuclear plants this year, if the prospects for their profitable operation don’t improve, you know, in the United States you’re really in trouble trying to operate a nuclear plant now. Part of that is because natural gas is so cheap that nuclear can’t compete, and part of it is because with more and more wind and solar coming onto the grid, these are power plants where the fuel is free, so once they’re built, when those things are putting out power, they are able to underbid pretty much any other generating source.

The most profitable part of the generating day is the middle of the day and that’s when solar is pumping out, so the most profitable grid power, which was being generated in the middle of the day by nuclear plants is now being taken away by solar and so it just doesn’t make any sense. I think people have sort of faulty mental models of what the future looks like, in terms of power demand, in terms of population growth, and I think in terms of what the real cost today, and in the future, are going to be for renewable power power and nuclear power.

Justin is in Vancouver, BC where he reads books, researches energy, carbon and financial systems at the University of British Columbia Institute for Resources, Environment and Sustainability while occasionally walking in the forest.

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